Tax Connect Flash | Germany: ECJ judgment of 19 July 2012, Case Deutsche Bank, C-44/11

23/08/2012

No VAT exemption for transactions relating to the management of securities-based assets (portfolio management)

In its decision of 19 July 2012 the ECJ clarified important VAT issues associated with transactions relating to the management of securities-based assets (portfolio management). Although a central element of these services consists in asset-based securities trading, which gives rise to direct changes in the rights in such asset-based securities, the ECJ has ruled that VAT exemption pursuant to Art. 135(1)(f) of Council Directive 2006/112/EC does not apply to portfolio management as a whole.

Reasoning: The ECJ takes the view that portfolio management is one single supply, that the purchase and sale of securities for the client investor is just one element of portfolio management and that the purchase and sale of securities is inseparable from the whole. Even if it is subject to separately agreed remuneration, this element is inseparable from the other element, namely the analysis and monitoring of the client investor's assets. The two elements thus constitute one single supply. The ECJ has ruled that as the element "analysis and monitoring of assets" does not give rise to legal or financial changes with regard to the securities, VAT exemption pursuant to Art. 135 (1)(f) of Council Directive 2006/112/EC does not apply to portfolio management.

On the question of the place where portfolio management is subject to VAT, the ECJ has ruled that Art. 56(1)(e) of Directive 2006/112 (in the version valid until 31.12.2009) includes supplies which are not exempt from VAT under Art. 135(1)(a) to (g) of Directive 2006/112/EC. This means that the place of supply of such services on portfolio management (subject to the additional criteria of Art. 56(1)(e) of Directive 2006/112) is subject to VAT where the customer to whom the services are supplied has his permanent address or where he usually resides.

We believe the ECJ decision will be of interest to all banks and financial service providers who provide portfolio management services in the sense of analysing and monitoring the client investor's assets and purchasing/selling securities for the client investor. In some cases it may also be of interest to the customer to whom such services are supplied.

For further information on this tax analysis and thought, please contact:

Tobias Schneider
Tax Counsel 
CMS Hasche Sigle

Authors

Tobias Schneider
Dr. Tobias Schneider
Partner
Stuttgart